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Contractionary Effects of Supply Shocks: Evidence and Theoretical Interpretation

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  • Francesco Giuli
  • Massimiliano Tancioni

Abstract

The debate on the response of hours worked after productivity improvements is still an open issue in the theoretical and empirical literature. In this work we show that, once conditional correlations are taken into account, both hours and investment decline temporarily following a positive technology shock. We fiÂ…rst provide evidence about this apparent puzzle employing weakly identiÂ…ed SVECs. We then set-up and estimate a sticky price/wage DSGE model in which the presence of strategic complementarities in pricesetting lowers the slope of the New Keynesian Phillips curve, and show that the posterior impulse responses are consistent with the SVEC-based evidence.

Suggested Citation

  • Francesco Giuli & Massimiliano Tancioni, 2010. "Contractionary Effects of Supply Shocks: Evidence and Theoretical Interpretation," Working Papers in Public Economics 131, University of Rome La Sapienza, Department of Economics and Law.
    • Handle: RePEc:sap:wpaper:wp131
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    Cited by:

    1. Laura Bisio & Andrea Faccini, 2010. "Does Cointegration Matter? An Analysis in a RBC Perspective," Working Papers in Public Economics 133, University of Rome La Sapienza, Department of Economics and Law.
    2. Giuli, Francesco & Tancioni, Massimiliano, 2012. "Real rigidities, productivity improvements and investment dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 100-118.
    3. Francesco Giuli & Massimiliano Tancioni, 2009. "Firm-Specific Capital, Productivity Shocks and Investment Dynamics," Working Papers in Public Economics 120, University of Rome La Sapienza, Department of Economics and Law.
    4. Francesco Giuli & Massimiliano Tancioni, 2012. "Prince-setting, monetary policy and the contractionary effects of productivity improvements," Departmental Working Papers of Economics - University 'Roma Tre' 0161, Department of Economics - University Roma Tre.

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    More about this item

    Keywords

    technology shocks; investment dynamics; vector error correction model; Bayesian inference.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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